Input tax credit under GST regime restricted to 20% of claims: CBIC

Businesses will have to pursue their vendors on a monthly basis to upload their invoices to enable them to take the entire input tax credit (ITC) after the indirect tax board came out with a notification to restrict these credits to 20 per cent of the claims. 

Concerned at dwindling revenues, the Central Board of Indirect Taxes and Customs (CBIC) put this condition on the claims where vendors have not uploaded their invoices within a month. 

Experts said it would block cash flow of businesses and increase their compliance burden. 

Though theoretically, businesses have to reconcile their ITC within 60 days, this clause was never implemented since the auto-populated form of purchases by suppliers — GSTR2 — has been suspended. 

As such, businesses are supposed to reconcile their input tax credit at the time of annual returns. However, the deadline of annual returns even for the first year of the GST rollout — 2017-18 — have been deferred a number of times. This means that there was no restriction on the businesses to claim their input tax credit, provided they have the invoices to support their claims. 

Now, businesses have to follow-up with non-compliant vendors on a monthly basis to upload their invoices in the form GSTR 2A. 
 

Harpreet Singh, partner at KPMG, said, “Restriction of mismatched ITC by 20 per cent would necessitate undertaking monthly reconciliation of purchase, credit register with GSTR 2A, and hence may increase the monthly compliance burden.” 

He said the move would also restrict credit, which was rightly availed of but did not get reflected in the GSTR 2A form, on account of default by vendors may result in adverse cash flow impact. 

The GST collections fell to a 19-month low of Rs 91,916 crore in September, pointing towards deepening economic slowdown. It was the second straight month of revenue collections falling below the Rs 1-trillion mark, compounding the government’s revenue woes amid steep collection target for the fiscal. The target is over Rs 1.1 trillion a month. 

In the first six months till September, GST grew by 4.9 per cent year-on-year. 

The government in August had extended the date for filing annual GST returns for 2017-18 and 20018-19 by three months to November 30, as taxpayers were facing technical problems in furnishing returns. In fact, the government postponed the deadline a number of times. The original deadline of filing these returns were December 31, 2018.  

GSTR-9 is an annual return to be filed yearly by taxpayers registered under the GST. It consists of details regarding the outward and inward supplies made or received under different tax heads. 

The form GSTR-9C is filed by those with an annual turnover of above Rs 2 crore. It is a statement of reconciliation between GSTR-9 and the audited annual financial statement, while GSTR-9A is the annual return to be filed those who have opted for the Composition Scheme under GST. 

The deadlines were extended after the businesses and experts complained about the complex nature of filing these returns and reconciliation of audited accounts with these returns. For instance, tax and legal consultants had said hundreds of amendments, notifications and circulars have made the GST Act very complex. 

Officials of the Tax Bar Association, a body of over 400 members of chartered accountants, company secretaries, cost advocates and tax consultants, had said that the government has made the entire GST procedure and filing of returns very “confusing with hundreds of changes in the rules and taxes”.